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Africa - a magnet for investors?

Conflict-stricken, poor and chaotic - this is what many foreign investors think of Africa. But experts say investors should focus more on the continent as it offers higher returns on their investments.

A billion consumers spending more than $600 billion annually, 5 percent

economic growth

each year, a fast-expanding middle class with a growing appetite for high quality and luxury goods, and a continent where 60 percent of the world's non-farmed arable land is located.

Although Europe can only dream of such numbers, Africa could proudly present them at this year's Africa Finance & Investment Forum (AFIF) business event that took place from June 4 to 5 in the German city of Cologne.

"Africa is in the ascendant.

Development in Africa

has so far been limited, but the continent now finds itself on the fast track," said Monty Jones, president of the non-governmental organization European Marketing Research Centre (EMRC) and organizer of the event.

He said he is convinced that yesterday's Africa is not to be compared with today's continent and certainly not with that of the future. "Twenty years ago, ethnic conflicts and wars brought everything to a halt and there was little room for development. But a lot has changed for the better. I can recommend Africa to Europeans. Africa needs Europe and we are geographically too close to remain disconnected," Jones told DW.

A recent United Nations report suggests raw material investments in countries like Tanzania, Zambia, Angola, Liberia and Sierra Leone will contribute significantly to the continent's economic growth this year. The young and well-educated middle classes are demanding products that offer high quality and performance.

Oil field in Nigeria (Photo: EPA)

Nigeria is a country rich in crude oil reserves

In the last decade, Africa's gross domestic product (GDP) per household doubled and per capita income rose annually by around 2.3 percent.

The International Monetary Fund says in the next five years, Africa will be home to seven of the world's ten fastest-growing economies.

All these numbers indicate good prospects for foreign investors in Africa. Countries such as China, India and Brazil have long recognized this potential and invested massively in the continent. But many analysts question European investors' lack of interest.

Europe hesitates - but why?

"I am sad that even nations like Australia and New Zealand - which are so far away from Europe - export more to Europe than all African countries combined, even though we're neighbors," Jones said .

Idit Miller, EMRC's managing director, said she is unable to comprehend European companies' reluctance to invest in Africa. "European investors first look whether democratic structures and transparency are present, but they actually should look for returns on their investments," she said, adding that returns are higher in Africa than in Europe.

"According to a World Bank report, six of the ten most business-friendly countries are in Africa. Nevertheless, Africa still has a long way to go and local politicians are now trying harder," Miller told DW.

These politicians, she said, are investing in youth and not staking everything for quick profits. For instance, Nigeria - a country that is rich in oil - has developed a concept called "Nigeria after the oil boom," says Chike C. Ogeah, Nigeria Delta State's commissioner for information, whose goal is to diversify the oil-rich country's economy.

To achieve this objective, they are on the lookout for investors. "We are looking for people who invest in our agriculture and infrastructure. We also want to develop our tourism industry and for that we are building a large recreation resort. Foreign investors from China, for instance, are supporting us, but we also want Europeans to come and invest," Ogeah said.

German companies on standby

Corruption and non-transparent structures are often not the actual risks that prevent German companies from investing in Africa. "Corruption in Africa is not as high as one would think. When one views the Transparency International's statistics, Africa is on average a better place than the BRIC countries," said Bruno Wenn, head of the German Investment Corporation (DEG).

DEG surveys among German companies have revealed other factors, such as the lack of skilled labor, as obstacles. "They are also concerned about the deficiencies in terms of infrastructure, particularly when it comes to energy, water and sanitation facilities," Wenn said, adding that transportation and the continent's ports are unreliable.

At present, shipping a container from Europe to Kenya is ten times cheaper than transporting it from Kenya to Uganda," he said, adding that legal risks due to an inadequate investment framework are another cause for concern among investors.

Monty Jones, EMRC President (Photo: DEG / Thomas Brill)

Monty Jones says Africa needs Europe and the two are too close to remain disconnected

Despite the obstacles, German investors' interest in Africa is increasing. "The number of companies that are viewing Africa as a future sales market is increasing. This development is something new and in the past, it was not taken into consideration as it was considered only as a continent that supplied raw materials. But there's a new awareness that it's a growing market where companies can sell products," Wenn said.

This awareness, he said, will lead to more companies setting up their production units in Africa and benefiting from the opportunities the continent has to offer.